FinTech, or financial technology, is the backbone of the financial system today and into the future. It’s a system of businesses, and in some cases literal networks, that provide a series of financial services to businesses and individuals. FinTech isn’t big banks, but big banks are very interested in this growing phenomenon. The world of FinTech is extremely fast-paced, with many startups springing up and fading away every year. Still FinTech remains a compelling investment globally, and it’s easy to see why once you’ve examined its principles.

The Middle Class Problem

FinTech seeks to solve the problem of the fading middle class, and the answer entrepreneurs are going with is “money management.” If people have better access to their money, including moving it around, the actual costs of money go down. A good example is affiliate marketing, which has caught on in recent years. Paying people is a logistical nightmare at scale, so third parties that can offer a reliable system to transmit payments represent a cheaper investment than struggling to implement your own.

As the costs of those common transactions go down, consumers and business owners pay less to move money and have more to shore up for a crisis or make new hires.

Big Banks

If you listen too closely, it starts to sound like big banks are irrelevant. Nothing could be further from the truth, but FinTech startups do represent a more agile force that big banks may struggle to compete with. The solution is investing. Banks are buying up these companies and adapting their technology for customer service.

About the Author: Phin Uphamis an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media and Telecom group. You may contact Phin on his Phin Upham website or Twitter page.

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